Why Remittances Matter So Much More Than Aid

This Thursday, Labour MP and Shadow Secretary of State for International Development Harriet Harman is going to give a talk at the LSE on the moral imperative for rich countries like the UK to devote 0.7% of their GDP to development aid. While the history of why we have this 0.7% aid target is an interesting one, let's also consider how aid figures into the larger scheme of capital flows to LDCs.

The graphic above (click for a larger image) from the UN International Organization for Migration's World Migration Report 2010 depicts workers' remittances alongside official development aid to developing regions. In every single region of the world expect for sub-Saharan Africa, remittances far outstrip official development aid as a source of capital flows. And, with innovations for sending international remittances to the region coming online, I believe it's only a matter of time before remittances to SSA edge past aid flows.

Think about it: the World Bank estimates that $440 billion in remittances went to developing countries in in 2010. If so, why do remittances receive far less attention than aid? The white man's guilt is evident in efforts of celebrity activists of this world to shame rich countries into pumping more aid--a message that obviously resonates with politicians like Harriet Harman. Perhaps they ought to change their message in light of this economic reality. Although "send remittances to the world" may not have the same punch and emotional resonance as "feed the world," there is precious little to suggest that aid butters the bread of more LDCs than remittances.

Lastly, it reinforces how a truly globalized world should look like where goods, services, capital and labour are mobile instead of today's world where so many restrictions exist for the latter. The image above only begins to hint at the possible increases in global welfare from dismantling borders--quite possibly a doubling of global GDP--but let's say not everyone is ready yet for such a world. Still, instead of fighting tooth and nail for small reductions in trade barriers or increasing comparatively trivial amounts of aid, perhaps rich country politicians should consider how their migration regimes prevent such desirable outcomes if they're really interested in promoting development. So if there's an IPE issue that matters for the future, it isn't aid or trade but most likely migration.